Bonds, deposits’ boost bode well for economy

Bank of Cyprus' chairman Christis Kassapis said that the release of the deposits reflects the bank’s prudent liquidity management

By Staff Reporter

A YEAR has passed since the Eurogroup decision on a bailout plan brought the island to its knees and the banks into a freefall, and a pair of encouraging announcements yesterday suggest that the economy might be on a path to recovery.

Biggest lender Bank of Cyprus said that its board approved the release of some €900m in fixed-term deposits, much to the delight of thousands of depositors who have seen their savings slashed ever since the ‘bail-in’ to rescue the bank last summer.

This was also a sign of confidence by the bank’s management who have been struggling with liquidity issues and the recovery of non-performing loans that account for nearly 50 per cent of their loanbook, a risky position made tougher with the new stress-tests for European banks announced earlier this week.

At the same time, the ministry of finance made a surprise announcement yesterday that it had raised €100m in a six-year bond via a private placement with an overseas investor, in the first international debt issue since the bailout rescued it from bankruptcy a year ago.

News about BoC’s release of the 9-month deposits that matured yesterday came as a relief to cash-strapped depositors who can once again access their large-sum savings that were blocked and split into three schemes last year to help the bank stand on its feet again.

The bank said in a statement that the reason behind the decision was “the improving liquidity position and the specific and deliberate actions to enhance liquidity through deleveraging,” the process adopted by the management to offload non-core assets, such as overseas operations and properties that have been vacated after the forced merger with Laiki Popular Bank.

“The release of the deposits reflects the bank’s prudent liquidity management and takes into account the improvement in the economic environment. The (bank’s) management recognises the improving trust and confidence shown by customers and, in tandem, meets the expectations of the general public in Cyprus for supporting the recovery of the economy as a whole,” said BoC chairman Christis Hassapis.

This was in a similar mood to the announcements made in January when the bank took the risk of releasing some €900m in 6-month fixed deposits, not knowing if thes funds would ever return to its branches.

This was confirmed by the European Central Bank data released this week that showed private-sector deposits rising slightly in March, the first increase since November.

The Ministry of Finance and the Central Bank of Cyprus have both approved the deposits release.

As per the release of the 6-month deposits, BoC said that it will proceed with the release of the 9-month time deposits as follows: a third of the amount is immediately made available in clients’ current accounts; a third is converted into a 3-month deposit maturing and automatically released on July 31; and the remaining third is converted into a 6-month deposit maturing and automatically released on October 31.

Hassapis said that the release of deposits marks yet another positive development for the bank following the sale of its Ukraine operations, as well as its stake in the Romanian bank Banca Transilvania.

Following a decision by EU finance ministers in March 2013, 47.5 per cent of uninsured deposits of over €100,000 were seized to recapitalise the bank, and the remaining 52.5 per cent was ordered frozen by the CBC.

In July, the CBC said in a joint statement issued with the finance ministry that 12 per cent of the outstanding balance in depositor funds which were frozen under the bail-in arrangement would be unblocked.

The remaining frozen funds were equally divided and placed in six, nine, and 12-month timed deposits.

Following the bail-in from the uninsured deposits, BoC achieved a core capital adequacy ratio of 10.2 per cent, according to figures for September 2013. New banking rules mandate a 9 per cent minimum core tier 1 ratio. The bank however is still leaking deposits, though at a slower pace over the last few months.

Meanwhile, the finance ministry said yesterday that the €100m bond issue carried a yield of 6.5 per cent and was launched under Cyprus’ borrowing facility with its creditors known as the European Medium Term Note (EMTN) programme.

The bonds will be listed on the London Stock Exchange and settled via Euroclear, the settlement system for securities transactions, the ministry said.

Proceeds from the transaction will be used for public debt management, including government financing, it added.

Access to the eurobond market was taking place via its updated EMTN programme.

The facility has not been used since before Cyprus was effectively shut out of international financing markets in May 2011 because of a spike in yields on its benchmark bonds. Yields have since fallen to about 5 per cent from more than 14 per cent, according to Reuters calculations.

“The Ministry of Finance will continue assessing market conditions and options as part of the broader strategy aiming towards the full restoration of market access,” the ministry said.

Last week, credit ratings agency Standard and Poor’s raised its long-term rating on Cyprus to B from B-, after the island gained plaudits from lenders for sticking to a painful adjustment programme and amid a receding threat of not being able to meet loan repayments.

The EMTN programme has a €9bn ceiling. Debt worth about €2.5bn has been launched under the programme to date, a finance ministry official said.

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